Has the financial PR model broken down?

Does the old-style financial PR agency have a role in today’s 24/7 media world?

It was once a cosy, clubby, convivial game to hawk public relations in the City. The lion’s share of business was transacted on the basis of a contact book. Alcohol-fuelled hospitality abounded and for many clients, the highlight of the year was a set of financial results.

Business journalists viewed the PR industry with a mixture of scepticism, amusement and affection. A standing joke was How many financial PRs does it take to change a lightbulb? I don’t know, but would you like to have lunch sometime?

A handful of agencies – notably Brunswick, Finsbury and Financial Dynamics – represented much of the FTSE 100 index. Relationships with stockbrokers were crucial – brokers, handling big flotations, would routinely urge client companies to use their favourite City PR firm.

‘Back in 2007, I’d have the phone ringing all the time,’ says one seasoned City PR man. ‘We were turning down business. I’d be saying Can you afford £250,000 a year? If not, no thanks.’

Mergers and acquisitions were routinely leaked to malleable hacks while friendly analysts, leaning towards ‘buy’ notes, were lavished with attention. Through a discreet phone call to a City editor, top PR people could call in favours and quietly kill any unhelpful stories.

Those days have gone. The old model has been creaking and straining for a decade. Comfortable profit margins have narrowed. Fees for advising on initial public offerings (IPOs) have fallen – in some cases to virtually zero – and instead of advising on takeovers, City PR firms have undertaken a spate of deals themselves in an effort to stay relevant.

Over the summer, Teneo International, the US corporate advisory firm, swooped on StockWell and Blue Rubicon. The two businesses – the former a capital markets agency and the latter a corporate reputation consultancy – are to be merged into what Teneo hopes will be a one-stop shop for communications with 500 staff.

Meanwhile, Powerscourt, the City PR firm founded by Rory Godson, a former business editor of the Sunday Times, has struck a strategic alliance with Hanover, Charles Lewington’s corporate and public affairs business which has, in the past, steered clear of financial work.

And City stalwart Smithfield Financial recently fell into the arms of Edelman, in a deal described as ‘one of the last pieces of a jigsaw’ for the global consultancy. Those transactions followed Bell Pottinger’s spin-out from Chime in 2012, College Hill’s re-branding as Instinctif Partners, Finsbury’s 2011 merger with RLM and the abrupt implosion of once vaunted M:Communications. So why the spate of upheaval?

Philip Gawith, co-founder of StockWell, reckons that much has changed. He says: ‘Traditionally, what clients were looking for from financial PR was a sounding board and some counsel – you might say, mirrors and a radar. What should you do, what should you say, who should you say it to?’

However, he argues that in the wake of the financial crisis of 2008, simply talking to an audience of journalists and shareholders is not sufficient. Scrutiny from politics, social media and non-governmental organisations (NGOs) has become much more intense. Companies have to be prepared to explain how they are socially useful – and, indeed, ethical.

‘It’s no longer enough to have a strong financial brand,’ says Gawith, citing, as an example, Goldman Sachs’ reputational nightmare as it struggled to explain how it had made huge profits from the US housing crash. ‘Companies need a strong societal brand too. Ten years ago, if you were shooting the lights out financially, people didn’t really care much about the other stuff. But that’s changed.’

StockWell’s combination with Blue Rubicon is intended to put financial expertise, branding and reputational knowledge, together with data-driven research skills, under the same roof.

That idea is far from unique: RLM Finsbury, Brunswick and Instinctif Partners have all broadened their offering, while traditionally non-financial agencies such as Fishburn Hedges have looked hard at getting deeper into the City.

You don’t have to look far to work out why all this anxious reinvention is underway. Profit margins have been squeezed. Before the financial crisis, a typical FTSE 250 company might pay an annual retainer of £250,000 to a City PR firm. The going rate, for clients of this size, has fallen to between £150,000 and £200,000.

At the top of the tree, a blue-chip, FTSE 100 company might previously have paid an annual retainer of £300,000 plus fees running into millions for PR work on corporate deals, such as acquisitions, disposals, joint ventures and mergers. The retainer, now, is more likely to be between £125,000 and £175,000 with deal fees of six figures, rather than seven figures, annually. In parallel to this, most large companies have beefed up their in-house PR departments.

It has become commonplace for senior communications figures to sit on the executive committees, or operational boards. Once regarded as a peripheral cost centre, getting the message right has become central to an organisation’s strategy.

Patrick Donovan, head of Citigate Dewe Rogerson’s financial PR practice, says: ‘In-house departments have become much, much more sophisticated.’

This, he admits, poses challenges for agencies. ‘Consultancies need to think how they can add value beyond the traditional areas of financial calendar and transactions. Obviously in-depth sector knowledge is key. But financial PRs also need to be a trusted sounding board which allows clients to benefit from all their broader experience, resources and contacts to include, where appropriate, other disciplines such as public affairs and investor relations.’

While the financial crisis might have been a catalyst, it was by no means the only factor behind the stress facing the financial PR model. Digitalisation has made it much easier to file London Stock Exchange announcements, with a touch of a button replacing endless labour-intensive re-drafts of faxes. And these announcements are available to the general public online, rather than being distributed selectively.

Meanwhile, both the media landscape and investor registers are unrecognisable. While the old triumvirate of the Financial Times, The Times and The Daily Telegraph remain influential in finance, upstart digitally native services such as Business Insider, Buzzfeed and Quartz play a role in setting the daily business agenda.

Large consumer-facing organisations have had to invest millions in building capabilities simply to respond to complaints on Twitter. Entire teams at airlines, supermarkets and banks are devoted to monitoring the microblogging service in order to defuse tricky situations before they go viral.

This, too, has eaten into communications budgets. Bloggers, broadcasters and newswires are directly addressing a far broader audience than ever before – and the millennial generation has very different questions about business.

While once, readers of the business media wanted tips on which UK stocks and shares to buy, they are now just as likely to be interested in the ups and downs of the Shanghai Composite index, the pros and cons of fracking and retailers’ defence of their use of zero-hours contracts.

Paul Downes, chairman of Instinctif’s capital markets PR business, says: ‘Clients have wanted help, especially since 2008, on a lot of repositioning work. There’s been emphasis on addressing political and regulatory themes – people need to explain their social role and to talk about how they’re looking after their workforce.’

He continues: ‘It’s about identifying issues and helping to craft a narrative in the knowledge that a political audience is looking at results statements, annual reports and corporate websites much more than was ever the case previously.’

That’s against a backdrop of austerity. Downes adds: ‘After the crash, clients started looking at budgets right across the piste – not just in financial PR and investor relations. They asked themselves What can we afford? and What do we actually want to achieve here?’

The credit crunch meant a halt to mergers and acquisitions which was disastrous for City PR: advising on such deals had often delivered between 30 per cent and 50 per cent of financial PR firms’ annual revenue.

Flotations, too, dried up, with a meaningful window for new issues on the London stockmarket only truly re-opening in 2012. Since then, competition to get on the end of IPOs has been intense: in preparation for TSB’s £1.5 billion flotation in the summer of 2014, the bank held meetings with ten different PR agencies vying for the business, before inviting two to go through a double-stage pitching process, the final presentation being directly to TSB’s boss, Paul Pester.

The eventual winner was Bell Pottinger. Rumours abound about PR firms offering to handle flotations for peppercorn fees simply in the hope of winning an annual retainer once a company is listed on the stockmarket.

Richard Oldworth, chairman of Buchanan, a City PR firm with more than 100 largely mid-cap clients, says: ‘Some agencies will do IPOs for virtually nothing on the basis of getting a retainer afterwards. We won’t do that. We won’t have our other clients subsidising loss-leading IPOs.’

Buchanan, which is owned by WPP, has baulked at the trend towards horizontal integration. It does not, for example, offer public affairs or political consultancy, preferring simply to offer recommendations of suitable firms to clients who ask for such advice. About 85 per cent of Buchanan’s work is with stockmarket-listed companies.

Oldworth says specific expertise in the ways of the City remains a highly sale-able communications niche. ‘The quoted company, once it comes to the market, will be faced with all sorts of things it’s experiencing for the first time,’ he says. ‘You start to become a trusted adviser – they sound you out on all sorts of issues before they go to an investment bank or a securities house.

‘I have, in the past, advised clients against doing certain transactions because of the way the market will perceive them. You’ve got to look at issues such as the quality of earnings.’

Some seasoned figures in the PR industry argue that trying to build too many extra competences within an existing agency is a risky game. Charles Lewington, chief executive of Hanover, has always been clear that his business, focused on reputations, will not go into financial, stockmarket-related PR. It is, he says, a ‘different skill set and a different business model’.

Instead, he chose to strike a deal with Powerscourt which, although well short of a merger, allows the two agencies to pitch jointly for business and to boast that they can provide an all-round package: financial, corporate and public affairs work.

It seems to be paying off. Powerscourt recently won Airbus’s financial PR brief – no coincidence, surely, that Airbus has been working with Hanover on public affairs for years.

‘We’ve got a very large suite of corporate clients,’ says Lewington. ‘We’re always looking for different ways to provide additional services for them and over the years we’ve had requests about who we can recommend on the financial PR side.’

He adds that the relationship helps his own team. ‘It’s useful for my consultants to be able to work out the impact of political or regulatory issues on clients’ share prices,’ he explains.

For all the transformation, financial PR is still a decent way to earn a living: according to an annual study by the Chartered Institute of Public Relations, those working in corporate or financial services PR earn an average of £54,919 – which is £11,000 higher than colleagues working in the public sector, albeit a shade below the typical salary of communications employees in pharmaceuticals or private healthcare.

Andrew Hayes, chief executive of Hudson Sandler, another well known City PR shop, agrees that reinvention has been essential: a change of image has been as important to PR firms themselves as to their clients. His firm no longer describes itself as offering financial PR – instead, it’s a strategic business communications consultancy. Hudson Sandler has put together a nifty graphic of its services, ranking the media and investors as just two of nine equally important audiences - alongside trade, suppliers, government, NGOs, employees, social media and consumers.

‘The traditional financial calendar business of putting out companies’ results is going, if not gone,’ says Hayes. ‘Anybody can get those results on the Internet now if they want them.’

He ticks off brand marketing, internal communications, website content, video material, annual reports and strategic positioning as services that clients nowadays want. Hudson Sandler has made a conscious decision to look overseas – while 15 years ago, 95 per cent of its revenue was from UK-listed companies, that proportion has today fallen to 60 per cent.

‘If I go forward ten years, I think you’ll find some very big, global communications agencies with offices around the world and then some very small financial PR agencies offering much more specialised services,’ says Hayes. ‘I’m optimistic. I think there are lots of opportunities to be had out there in joining up with international businesses. And meanwhile, mergers and acquisitions are coming back, which will make these businesses much more solid and sustainable.’

It’s not all bad. New opportunities are opening up. The arrival of ‘integrated reporting’ has required Britain’s quoted companies to be much more frank about the risks and challenges they face when compiling annual reports – a change that plays well to PR agencies’ expertise in communication and presentation. The head of communications at one FTSE 250 industrial company, who declined to be named, said wise counsel remains a sought-after commodity, particularly in a crisis.

‘Ultimately, when the chips are down, you want people who are going to fight for you – who are going to wage a tough battle and put their all into it.’ In high profile situations, he admitted that the influence of top spin doctors – notably Brunswick’s Sir Alan Parker and Finsbury’s Roland Rudd – was hard to escape.

‘Alan and Roland do have a lot of personal pulling power. There’s a certain fear of what happens if you haven’t got one of them onside? Are you leaving yourself vulnerable?’

When large takeover deals come along, they still pay well. RLM Finsbury made £400,000 last year by advising on Schneider Electric’s acquisition of Invensys – a figure not unusual for a multi-billion pound cross-border transaction.

Gavin Davis, managing director of Bell Pottinger’s corporate and financial business, says the recent management buyout of his agency from Chime was all about creating a firm with several different disciplines – including financial, corporate, digital and political offerings.

‘The death of financial PR is greatly exaggerated. There are still clients who want to buy that very specific service but there’s a clear trend towards companies wanting more joined up advice,’ says Davis. ‘You can’t disentangle capital markets from politics from brand now in the way you could perhaps have done when the City was very much more of a closed shop.’

Amid all these changes, the Square Mile itself has become less clubbable. Claret-fuelled lunches dragging on late into the afternoon are largely a thing of the past. While contact books and personal acquaintance are still a valuable currency, they are not quite as pivotal as they once were. Power has disseminated from grandees at blue-blooded brokerages to a far more international financial community. Shareholder registers of FTSE 100 companies contain hedge funds, sovereign wealth funds and international names in addition to the familiar, traditional, British insurers and pension fund managers.

StockWell, a relative upstart agency established in 2010, has made it a point of principle to avoid the old school tie, nudge and wink, modus operandi.

‘Thirty years ago, if something went wrong you’d call somebody like [Cazenove banker] David Mayhew,’ says Gawith. ‘He’d contact a few of the long-only shareholders and he’d tell you what shareholder sentiment was. Nowadays, the shareholder register is very much more fragmented and similarly, the media is more fragmented too.’

Gawith says that older firms relied on the ‘City cocktail circuit’ to win their business. They are having to be altogether more professional – and more meritocratic – in this brave new world. ‘You can’t build a sustainable reputation based on a ‘who you know’ business model.’

THE VIEW FROM IN-HOUSE

Everybody needs help in a crisis – so financial PR advisers routinely join National Grid when the power companies stages emergency drills on power outages, explosions or surges.

‘They’ll be at our offices when we do emergency exercises on crisis communications,’ says Chris Mostyn, National Grid’s head of corporate media relations. ‘They’ll either be supporting our in-house press office or they’ll be journalists in role playing exercises.’

From the standpoint of a FTSE 100 company, Mostyn sees a useful role for external financial PR advisers – albeit a role that has evolved substantially over recent years.

‘It used to be about the annual meeting, quarterly and half-year results and the financial calendar,’ says Mostyn. ‘They’d help us with the City press, City columnists and they’d co-ordinate meetings with analysts.’

Nowadays, it needs to be much more holistic. He continues: ‘Like any company, we’ve got messages that we want to talk about – and they’re not all about our earnings per share or our dividend. It’s about other things that are going on around the business.’

PR agencies, he says, need to dig much more deeply into their clients’ industries. ‘We’ll want to know what else they’re bringing to the table. Their role is around integrated communications as opposed to financial PR. We’ll want to know what other companies are doing, where our chief executive should be speaking, how we could be doing things differently, how they can help to shape our messaging.’